The Chancellor, Rachel Reeves, has committed to taking action concerning the ‘carried interest’ loophole and has issued a Call for Evidence. In particular, the government is seeking detailed engagement with expert stakeholders.
Carried interest is a form of performance-related reward fund managers receive, primarily within the private equity industry. It has favourable terms being taxed under Capital Gains Tax (CGT) rates of 18% and 28%, rather than under the Income Tax regime.
Over the coming weeks, officials will meet a range of expert stakeholders across the industry but the government is also seeking written representations. These must be submitted by 30 August.
The government is interested in feedback on the following areas:
Question 1: How can the tax treatment of carried interest most appropriately reflect its economic characteristics? The government notes that there are a range of circumstances in which carried interest is received and that the characteristics of the reward will not be the same in all cases.
Question 2: What are the different structures and market practices with respect to carried interest? The government is particularly interested to understand how these differences should be taken into account as part of its reforms.
Question 3: Are there lessons that can be learned from approaches taken in other countries? While many other countries have specific regimes for the taxation of carried interest, their detail and conditions for access vary.
While the government welcomes written representations, it is also keen to meet with stakeholders to discuss the issues. Submissions should be provided by no later than 30 August, and meetings can be requested at any point before then. Following this call to Evidence, stakeholders should expect a further announcement at the Budget on 30 October.
If you would like to get in touch, please send an email to:
Useful guides on this topic
Tax on carried interest: The tax loophole for fund managers
Investment partners can legitimately avoid Income Tax and National Insurance Contributions (NICs) by having their profits taxed under the Capital Gains Tax (CGT) regime.
Private equity leaders earn £2.7bn in carried interest
Research from law firm Macfarlanes has found that 255 private equity executives earned £2.7bn in Carried Interest for the tax year 2020/2021. Carried interest, due to a quirk in the tax rules, is taxed as capital gains.
External links
HM Treasury: The tax treatment of carried interest – A call for evidence
